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Analysis: Will Governor Christie's House of Cards Collapse?

The reason for the January 2012 revenue overestimate was clear: While most governors would have squirreled money away for a big tax cut in their 2013 gubernatorial reelection year, Christie’s sights were already on Washington. Christie wanted to propose an across-the-board 10 percent income tax cut in time for the Republican National Convention that summer to go along with the bipartisan agreement he had reached with Senate President Stephen Sweeney (D-Gloucester) to fix the state’s pension system by building up to full actuarially required funding of the state’s pension system over a seven-year period.

When Christie’s income tax cut was exposed as a boon for the state’s millionaires that would do little for most New Jerseyans, Christie endorsed Sweeney’s alternative plan for a property tax deduction up to $1,000 on the state income tax. For Christie that spring, any tax cut would do.

Christie’s original income tax cut would have cost the state $800 million in lost revenue in this year’s Fiscal 2014 budget and $1.1 billion more in the upcoming FY15 budge -- which would have been catastrophic when added onto the combined $2.7 billion shortfall in the FY14-FY15 budgets that developed in April.

That shortfall led Christie to cut $900 milion in promised pension payments for FY14 and $1.5 billion more for FY15 -- essentially abandoning the third and fourth years of the scheduled buildup to restoration of required pension funding that was his biggest accomplishment.

The Millionaire's Tax

It is to fund the restoration of the actuarially required pension payment of $2.25 billion in FY15 that led Sweeney and other Democratic legislative leaders to propose an increase in the millionaire’s tax to 10.75 percent for three years, a one-year hike in the corporate business tax to 10.35 percent, and a suspension of $175 million in corporate tax incentives for a year. Christie has promised to veto the Democratic tax increases -- which would be fatal for a Republican presidential candidate.

That would leave pension funding at $681 million in the FY15 budget, driving up the state’s unfunded pension liability to over $40 billion, and making it virtually inconceivable that he could find the $1.8 billion in revenue that his treasurer, Andrew Sidamon-Eristoff, said he plans to find to make a $2.5 billion pension payment in FY16.

A Heavy Lift

Christie has promised a plan to cut not only New Jersey’s pension deficit, but also its $51-billion-and-growing unfunded liability in retiree health benefits, but getting the Democratic Legislature to take away the free healthcare public employees receive after 25 years of service would be just as heavy a political lift as cutting pension benefits.

Christie also needs to come up with a new five-year, $8 billion plan by FY16 to refurbish the Transportation Trust Fund, which is running out of money a year earlier than expected because Christie diverted the New Jersey Turnpike money from the cancelled ARC Tunnel to plug holes in his operating budget instead of paying for highway, bridge, and mass-transit construction and went on a borrowing binge that used up almost all of the TTF’s set capacity.

Without $3.3 billion diverted from the Port Authority and the New Jersey Turnpike, it is hard to see where Christie can get the pay-as-you-go funding he needs without raising the gas tax -- which he is against and could be potentially lethal in the Republican presidential primaries.

So, even though New Jersey ranks near the bottom in economic and employment growth, Senate Budget Committee Chairman Paul Sarlo (D-Bergen) is not alone among political observers in believing that this is Christie’s last budget, and that he will leave to run for the presidency before the Transportation Trust Fund needs to be renewed and before continued sluggish revenue growth dooms any hope of meeting the pension funding schedule he signed into law in 2010.

Christie even has a readymade excuse: He cannot raise money from Wall Street firms who do business with the state while continuing to serve as governor -- which was one of the reasons that Republican presidential nominee Mitt Romney did not choose him for vicepresident.

It’s not much of an economic and fiscal record to run on, as Sarlo noted a few weeks ago. But even that is dependent on Christie surviving the various investigations he faces.

For the runaway favorite for the Republican presidential nomination coming off his landslide reelection victory over Buono less than eight months ago, it has been a steep fall, although his Q factor as must-watch TV has not dropped at all, as Jimmy Fallon can attest. Christie’s “Dad Dancing” was an instant YouTube hit. Whether Christie’s outsized personality translates into the 10s of millions of dollars and votes he needs to mount a serious presidential run once the investigations have run their course remains to be seen.

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